This summer, the Ninth Circuit Court of Appeals dealt a blow to Chapter 13 bankruptcy filers who earn more than the average person. In In re Flores, the court ruled that above-median income Chapter 13 bankruptcy filers who have no disposable income, and therefore are paying nothing to unsecured creditors, cannot use a three-year repayment plan, but instead must be in bankruptcy for a full five years. In re Flores, _ F.3d_ (9th Cir. Aug. 29, 2013). In so ruling, the Ninth Circuit reversed its previous decision on this issue in In re Kagenveama, which had been good law since 2008. In re Kagenveama, 541 F.3d 868, 875 (9th Cir.2008)

What does all of this mean?

How Long Does a Chapter 13 Plan Last?

The simple answer to this is – it depends on whether your household income is greater or less than that of a similar sized household in your state.

For those with incomes below the state median, their plans can be as short as three years.

For those with incomes above the state median, their plans must usually be five years.

There are a few exceptions to this rule. For example, if you are below median income, you can opt for a longer plan. And if you are above median income, you can opt for a shorter plan if you can pay off all of your unsecured debt before the full five years.

In some circuits, there is one more exception: Above median debtors can propose a three-year plan if their disposable income is zero or negative.

How Does Disposable Income Factor Into the Equation?

In Chapter 13 bankruptcy, you must put all of your disposable income towards your repayment plan. Disposable income is your income from most sources, reduced by certain allowed expenses. Even if you are a high-income wage earner, your allowed expenses might bring your disposable income to zero, or a negative number. (See Nolo’s article The Best Effort Requirement in Chapter 13.)

Some courts, including the Ninth Circuit during the past five years, have allowed above median Chapter 13 debtors with no disposable income to propose a three year plan. The idea being this – if you aren’t paying anything to unsecured creditors, then why make the debtor stay in bankruptcy for five years.

The Ninth Circuit, Joining Other Circuits, Sticks it to Higher Income Debtors

In In re Flores, the Ninth Circuit ruled that above income Chapter 13 debtors must propose a five year repayment plan, even if their disposable income is zero or a negative number. This ruling puts the Ninth Circuit in company with the Sixth, Eighth, and Eleventh Circuits on this issue.

What does this mean for you? If you live in Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, or Washington, and your income is above the state median, be prepared to be in bankruptcy for five solid years.